Las Vegas Tech: What Went Wrong and Where Do We Go From Here?

With the ups and downs of the Downtown Project (DTP), a $350 million effort dedicated to revitalizing Downtown Las Vegas in part with tech startups, the city has witnessed both the euphoria and disappointment associated with the tech industry. “The tech industry is unique because failures, in fact, aren’t negative,” says Leith Martin, the executive director for the Center for Entrepreneurship at UNLV. “There are lessons to be learned.” Martin is speaking about businesses, but he is also reflecting on Las Vegas. The setbacks have helped people like Martin better understand what it will take to create a sustainable local tech economy, one that can support startups and attract established companies.

In 2012, Zappos CEO Tony Hsieh had tech on his mind when he launched the DTP. Fifty million dollars of that revitalization money was dedicated to investing in startups and managed separately as the Vegas Tech Fund (known today as VTF Capital). Tech media outlet TechCrunch covered Hsieh’s efforts, announcing a “tech renaissance” in “old Las Vegas.”

Five years later, Downtown certainly looks and feels different, but the tech scene has waned. In 2013, Joshua Ellis, a software developer who worked for two tech companies that received funding from the DTP (NSFWCORP and Maidly), delivered a speech at a monthly series hosted by the DTP, questioning the problems that startups choose to solve, and wrote a blog post titled “Vegas Tech, We Need to Talk” criticizing DTP’s efforts at redevelopment, which resulted in a meeting with the organization. According to Ellis, the startup tech community spurred by the DTP is now “dead” in part because money was the main attraction, and the money is gone.

Today, 90 percent of VTF Capital’s portfolio is based outside of the city, says partner Zach Ware. “It’s our belief that … we can do more for Las Vegas companies in the long term if we are broadly successful,” Ware says. But without local investment, it is hard for startups to prosper, a fact that Ware acknowledges: “The biggest challenge for startups is capital. We have two problems in Las Vegas: a lack of sophisticated angel investors and a lack of growth capital sources.” VTF Capital invests on average $200,000 to $1 million at what is known as the seed stage. Angel investors typically invest around $25,000, and growth capital is usually $2 million or more, according to Ware.

The city has seen headlines announcing the arrival of eBay and Switch, but the impact of these companies is hard to assess from the perspective of tech companies. For example, eBay’s 2015 expansion into Las Vegas was only projected to create two jobs. Local tech experts agree that data center Switch supports tech innovation in other ways, but the company did not provide local employment numbers on request. This lack of job creation could reflect a broader trend. According to a 2013 study by two Oxford University scholars, up to 47 percent of jobs in the United States could be automated within two decades.

There are plenty of tech jobs around—in coding, for example—but Las Vegas might not be prepared for them. The Bureau of Labor Statistics recently found that Clark County has 54 percent fewer people employed in computer and mathematical occupations when compared to other American cities. This number may be the result of a lack of skilled tech laborers (Las Vegas shines as a service-oriented town, after all), so we don’t attract tech companies, and since tech doesn’t thrive here, the city doesn’t attract skilled laborers—the chicken or the egg conundrum. Either way, education, better strategies and more investment top the list to becoming an established tech city.

Barbara Coffee, director of economic development and tourism for the city of Henderson, recognizes that Clark County has skill gaps, so her office has implemented programs to provide underemployed locals free training in relevant tech skills such as cybersecurity. But Martin thinks that broad-based education reform is a multi-decade solution.

“What Vegas has to do is begin leveraging assets. We have things that don’t exist anywhere else in the world—for example, [the number of conventions we host],” which create incredible marketing and testing opportunities for technology companies, Martin says. Both Coffee and Martin highlight the state’s low taxes and cost of living as being other pro-business assets.

Martin also thinks an effective strategy must focus on industries that already thrive here, such as hospitality, gaming, esports and water management. Whereas DTP-funded startups built everything from robots to an app-supported dry cleaner, Martin believes concentrating on areas of local expertise will be more attractive to investors.

Martin is working on other avenues for increasing investment in local startups. He notes that successful businesspeople from all over the world retire here thanks to the state’s low taxes, but most of them don’t invest in local businesses. Martin’s office is identifying these prosperous retirees. “We need to pull those people into the community,” he says.

Education, strategy and money may be the nuts and bolts of a tech economy, but there is also an intangible component, and that is a compelling Las Vegas story.

Roberto Coppola, who has experience founding startups locally and is now vice president of advanced products at Aristocrat, says, “This stigma of Las Vegas as a place full of undesirables is something that we need to do a better job of debunking. … Moving to Las Vegas was the best decision I ever made, and I am so glad I did not listen to those ignorant people who gave me the ‘How could anyone live there’ type of response.”

This is perhaps something that the DTP got right. Successful or not, it proselytized that Las Vegas could be a home for ingenuity and invention.

“DTP brought noise and momentum,” Martin says. Many of the people who moved here just to receive funding from the DTP have left, but the people who stayed, and those who were here decades before, are focused on the long term. “Now we have a core group of people who care,” Martin says. “I am very optimistic because I have never seen a community with so much untapped potential.”